John Shaeffer, Esq.          &         Pierce O'Donnell, Esq.

O'DONNELL & SHAEFFER, LLP

1. INTRODUCTION

2. WHAT IS PRODUCT PLACEMENT

3.  PRODUCT PLACEMENT FROM THE CONTENT PROVIDER'S      PERSPECTIVE

4.  WHAT ABOUT THE LAW

5. CONCLUSION

6. FOOTNOTES (See number in brackets within text)

DISCLAIMER

1. INTRODUCTION

2. WHAT IS PRODUCT PLACEMENT       

Product placement is the incorporation of an advertiser's product into the entertainment medium itself, blurring the distinction between the two. Before discussing the significance of product placement, however, it is important to understand the reasons behind advertising. At its most basic level, advertising seeks to create impressions about a product to potential consumers. Both the fact of and the content of an advertisement speak to the quality [2]  of the product being advertised. Obviously, the actual quality of a good cannot be conveyed in a 30 or 60 second commercial. Quality can be conveyed through the production cost of an ad as well as the frequency that an ad runs. Tying a product to a particular celebrity or popular show can also convey quality.

An additional element of advertising is signal loss. Signal loss refers both to the fact that a targeted consumer will not see all of the ad as well as the propensity of the consumer to forget the ad. While the sheer number of ads in a medium can convey quality, advertisers believe that there is a diminishing return in each repeated impression to a consumer. For this reason, advertisers speak in terms of creating alternative impressions - i.e., conveying the message in alternative mediums or in alternative ways.

All advertising impressions are not considered equal. An issue that arose in Rebook's claim against Sony over the exclusion of a "Rebook commercial" at the end of the motion picture "Jerry McGuire" was how to value the impression to a captive audience in a movie theater to a commercial that was integrated into a motion picture. It is not hard to imagine that an advertiser would pay more to have its commercial integrated into a film and viewed by a captive audience in a theater than it would for the same commercial on television when the consumer is free to flip the channel.

Despite the problems with the "Jerry McGuire" situation, studios and content providers have not shied away from incorporating actual commercials into storylines, as witnessed by the Nike commercial that was made part of "What Women Want." While the specific terms of Nike's deal are unavailable, one can wonder how successful this element of the movie would have been had Paramount decided to use a fictional shoe company rather than Nike.

It is not only the jaded nature of consumers to the ever-increasing numbers of television commercials that have caused advertisers to look for alternatives, but also technology itself. With the advent of systems like TIVO, consumers can now watch their favorite television shows without having to watch the commercials that paid for the show. Such technology makes television advertising less valuable to companies, which, in turn, means that they will spend less for the impression.

While one would expect television - which is in the business of delivering eyeballs to advertisers - would have lead the renewal of product placement into popular entertainment, it was film that reinitiated the practice. After the perceived success of product placement in E.T., the movie studios were quick to build their own internal product placement departments. At this same time, even though television was consciously developing product to meet the demographics sought by particular advertisers, television executives religiously avoided any brand references within shows themselves. Because our culture has become evermore brand dependant, television occupied a strange world when characters in programs would ask for a cola rather than a Coke.

"Survivor" is credited with reintroducing product placement into television. In fact, "Survivor" might never have reached television without product placement. In the selling of the show, initial sponsors were offered not only market exclusivity - Rebook being the only athletic shoe to advertise on the show - but were also offered placement into the show.

"Survivor" also demonstrates the varying levels of success that can be achieved with product placement. Most people in marketing agree that the impression created by participants wearing Rebook gear is a more effective impression than the winners of a particular challenge getting a bag of chips to eat. Stated simply, effective product placement has the product being integrated into the plot or the script rather than being an obvious afterthought plug.

As product placement matures, those involved continue to refine their art of persuasion. Consumer product companies are now beginning to enter into long term business relationships with entertainment content providers. A noted example is GM's relationship with Warner Bros., which while not resulting in any memorable placements of any GM products in any recent Warner Bros.'s production, has resulted in placement of Warner Bros.'s characters in GM commercials and on its cars.

Advertisers are also becoming savvier in the value of various placement opportunities. For example, different considerations go into placing a product in a production that is in the early stages of development and will not hit the theaters for a year or more verses deciding to buy a last minute phantom billboard ad strategically placed on the screen during a television broadcast of a sporting event. Curiously, this practice of adding phantom ads is not only making its way into other live broadcasts, like news shows, but also is actually making its way into the post production of movies and television shows to capture additional last minute advertising sales.

Arguably, the outer limits of product placement involve its use in news and news related broadcasts. Recently, we have begun to see commercials that directly follow the content of a news story to add more information to the story while also selling a product, further blurring the line between news, entertainment and advertising. Ultimately, the consumer will decide if this further reach crosses any lines.

3. PRODUCT PLACEMENT FROM THE CONTENT PROVIDER'S PERSPECTIVE

Money drives product placement for content providers. Over the past decade, content providers have discovered a number of unique ways to get money out of advertisers. The earliest forms of product placement involved companies providing loads of free or deeply discounted products hopefully to be used as props in a production with no guarantee that the product would ever make it into the production. Thereafter, producers began courting advertisers to pay to have their products seen in anticipated productions.

Also over the past several years, especially in the realm of children's movies, we have seen sponsorship and product placement relationships built, not on providing financing for the production, but rather as a mechanism to advertise the production itself. The same way BMW valued having their product linked with James Bond. A film aimed at a younger audience would view a product placement/sponsorship relationship with a McDonalds or Burger King as a way to not only defer advertising expenses, but also as a way to add legitimacy to the entertainment content among its targeted audience.

By no means, however, has the relationship between content providers and advertisers been all a bed of roses. For example, in the original "Die Hard" movie, Black & Decker paid to have Bruce Willis use one of its drills in the movie. Unfortunately, that scene ended up on the cutting room floor. Similarly, Rebook obtained substantial placement throughout the motion picture "Jerry McGuire." Rebook, however, contracted to have a commercial appear at the end of the movie, and that commercial was cut. Rebook believed that its contract with Sony gave the shoe manufacturer final cut approval with respect to the use of its product in the production. By releasing the film without the commercial, Rebook contended that Sony violated that contractual right. After these two cases, studios retrenched on their contracting language, essentially providing advertisers no creative control over the use of their product in a production and no guarantee that the placement that they pay for will actually make it into the final production. Obviously, the value of unsure placement is worth significantly less to an advertiser, and some advertisers have begun to question whether product placement has any value whatsoever. Differing deals can still be cut with different content providers depending on the investment the advertiser is willing to make into the production. Moreover, many large consumer product companies have struck long term deals with entertainment companies that essentially give them a right of first refusal to be used in various upcoming projects.

Similarly, content producers must walk a similar fine line with their content creators. While product placement and sponsorship has become a mainstay in the mega family movie, instances still occur when the content creator simply says no. For example, Warner Bros. has been uniquely constrained by the author of the Harry Potter books in how it markets and cross promotes its motion picture - note the lack of any fast food sponsorship. By the same token, the studios need to be conscious of how consumers may react to their product placement strategies - some expressed concern about the appearance of a free AOL CD in Tony Soprano's mail during the season premiere of "The Sopranos."

4. WHAT ABOUT THE LAW

As alluded to, the most significant legal issue facing all of the players considering product placement opportunities will be the contractual terms that they negotiate. In addition to rules that the parties agree to abide upon, participants need to be aware of some broader legal requirements.

The United States Federal Trade Commission is the agency charged with policing advertising. Several years ago, the Federal Trade Commission declined to issue any specific guidelines for product placement. 12/11/92 FTC Release. At best, the FTC has issued regulations governing endorsements, understanding that a celebrity's use of a product adds quality to that product. 16 C.F.R. § 225.0 et seq. Because, however, product placement typically does not include any specific endorsement by the celebrity of the product, the mere use of the product in a production will not run afoul of these regulations.

Product placement for children's programming arguably has some additional self-regulatory guidelines set by the advertising industry established by the Children's Advertising Review Unit. See 1996 CARU Guideline. These guidelines recommend against linking products directly to program personalities - the essence of product placement. These guidelines, however, seems to have had little impact on the use of product placement in children's programming.

While somewhat different than the business of product placement, content creators must be cognizant about the use of brands in productions without a company's consent. Mattel is notoriously proactive in its vigilant protection of its Barbie® brand - note the litigation over the Aqua song "Barbie World." Federal Unfair Competition law constrains the unauthorized use of famous brands to the extent that such use implies an endorsement of by the brand of the product or dilutes the value associated with that mark. For example, many famous brands contemplated litigation against the publishers of the book "American Psycho" when its author referenced many luxury brands in connection with his psycho's activities. Similarly, one of Rebook's claims against Sony was for atrademark resulting statement "f*** Rebook" by a character in the movie. While the district court rejected that claim, the policing by companies of the illicit use of their brands in entertainment can add significant transactional costs to any production. Obviously the better course is always to apprise a company about the use of their brand even if no money is sought.

5. CONCLUSION

Over the next several years we should expect to see an even greater blurring of the line between advertising and entertainment content. Recent teen pop records now end with advertisements for up and coming new products. Similarly, advertisers have created their own group to create programming - the Family Friendly Programming Forum. While this forum funds the development of entertainment content, it contends that it does not actually involve itself in the writing of the programming, other than insuring that it is family friendly. The only reason for this artificial wall, however, is the desire not to offend consumers.

Ultimately, we can expect advertisers and content providers to continue to push the outer bounds of this integration. Consumers, either through public sentiment or by demanding regulation, will determine when advertisement has crossed some still yet ill-defined line. Today, consumers do not seem to insist on a clear demarcation between advertisement and entertainment. In fact, consumers do not seem to mind advertising being integrated into entertainment, so long as the entertainment remains entertaining. Ask most consumers and they will tell you that they would rather watch product placement laced programming that they enjoy than "pristine" programming that is boring.

FOOTNOTES

 [1]   A number of recent articles were reviewed in preparing this article. Rather than provide references to each cited proposition, copies of the articles are available in a .pdf format from LegalElite.com or from me directly by simply sending me an email.

 [2]   For purposes of advertising, "quality" means that a product has intrinsic value to the consumer targeted for the ad compared with the consumer's alternative choices. Thus, lower price and convenience are as much qualities of a good as superior workmanship.

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